A new study finds "rent reporting increased the share of people with near-prime scores or better by 25 percentage points."
Renters can see real boosts to their credit scores if their landlords report their rent payments to credit bureaus, according to a new study from the Urban Institute, an independent social and economic policy institution.
Of course, that only works if tenants pay on time. Late or skipped payments, along with defaults and evictions, could have the opposite effect.
The Upside For Renteres
In a news release, the Urban Institute explained how good tenants benefit from having their rents reported:
"In the first randomized study of rent reporting—the inclusion of housing rental payments in credit data—we show that this practice can help people get a credit score for the first time or improve their score. It is exceedingly difficult to get by in the US economy without participating in the credit system. People with higher credit scores are typically offered a range of credit products with competitive interest rates, and accessing debt and making payments on time helps further boost their credit scores. Yet many people have fewer or less favorable forms of credit available to them and thus find themselves unable to build their credit records.
"In recent years, the major credit-scoring companies have begun adjusting scoring algorithms to factor in reported rental payments. Preliminary research suggests that rent reporting can tangibly improve people’s credit scores."
Renting As a Path to Homeownership
A good credit score is especially important if your ambition is to become a homeowner. All types of mortgages have minimum score thresholds, ranging from 580 to 620 (FICO) for the most popular ones, and failing to reach one could result in a denial.
But, as the Urban Institute implies, the lowest mortgage rates go to those with high scores. So, giving yours a boost could save you serious money.
Of course, rent reporting isn't the only way to improve your score. Read I'm a Loan Officer. Here's How to Improve Your Credit Score Before Buying a House for other ideas.
And learn more about credit reports and scores on the website of a federal regulator, the Consumer Financial Protection Bureau.
How Landlords Can Report
Traditionally, landlords never reported rent payments to credit bureaus, such as Equifax, Experian and TransUnion. So, even those with a lifetime of promptly paying their rent often had no credit scores or low ones.
However, several years ago, those Big 3 credit bureaus (and others) began to accept information on rental payments from those landlords who volunteered it. Unfortunately, take-up has been slow. Landlords tend to see reporting as just another chore to add to their to-do lists.
Still, many are open to persuasion. So, ask your landlord whether he or she would kindly begin reporting your payments. Just recognize that he or she is not obliged to do so, and your success or failure might depend on how valued a tenant you are.
Certain rent-reporting platforms specialize in credit bureau reporting for landlords, such as FrontLobby, RentRedi, Rental Kharma, and others.
Persuading Your Landlord
If your landlord is unwilling to oblige, try to show the advantages to his or her business. The Landlord Credit Bureau provides some heavy ammunition, citing several upsides. To begin with, 68% of tenants prefer credit reporting landlords. Then reporting can, according to the bureau:
- Attract the tenants who are most likely to pay on time
- Reduce late payments and delinquencies
- Improve tenant retention
- Enhance tenant screening abilities
- Put housing providers on a par with other creditors
Most landlords see themselves as businesspeople. And that's a pretty strong business case. Why not forward this article to yours?
